The wealth and poverty of nations has been a preoccupation of economists since Adam Smith founded the discipline 250 years ago, when he wrote a book titled, The Wealth of Nations.

This year’s Nobel Prize in Economics was awarded to three men who traced the institutional roots of national prosperity by exploring the vastly different outcomes in former European colonies.

Daron Acemoglu and Simon Johnson from MIT and James Robinson of the University of Chicago will share the prize — worth about $1.058 million — for helping to explain how the different institutions in those former colonies continue to shape economic fortunes today.

“Rather than asking whether colonialism is good or bad, we note that different colonial strategies have led to different institutional patterns that have persisted over time,” Acemoglu said during a news conference in Stockholm where the prize was announced.

By coincidence, the announcement came on a U.S. holiday that honors both European explorer Christopher Columbus and the indigenous people of the new world.

Colonies where a large share of settlers survived tended to establish inclusive, democratic institutions and subsequently prospered, the prize-winning researchers found. Those where relatively few settlers survived often formed more autocratic, extractive institutions and ended up languishing.

Democratic vs autocratic nations

The findings are generally pro-democracy, said Acemoglu, who along with Robinson co-authored the book, Why Nations Fail. But he added, democracy is not a panacea.

“Introducing democracy is very hard,” Acemoglu said. “When you introduce elections, that sometimes creates conflict. And in particular, in already polarized societies, elections can lead to short-lived outcomes that are sometimes not democratic in nature.”

China, meanwhile, has grown to become the world’s second-largest economy and lifted hundreds of millions of people out of poverty, despite its autocratic governing structure.

Acemoglu argued that autocratic governments can boost growth temporarily by pouring resources into favored industries, but that tends to be hard to sustain. He acknowledged democracies don’t always deliver on their potential for widespread prosperity. He pointed to survey data showing support for democracy is at an all-time low.

“Democracies are going through a rough patch,” Acemoglu said. “And it is in some sense quite crucial that they reclaim the high ground of better governance, cleaner governance, and delivering sort of the promise of democracy to a broad range of people.”